FEDERAL FINANCIAL COURT Judgment of
27.2.2019, I R 81/17
ECLI:DE:BFH:2019:U.270219.IR81.17.0
Income adjustment in accordance with
section 1 (1) AStG for write-downs to the
going-concern value of loan receivables issued by the Group and for the
formation of provisions due to the utilisation of a guarantee
Guiding Principles
1. the insufficient collateralisation of a
loan or a right of recourse from the utilisation of a guarantee is generally
not part of the "terms and conditions" not customary for third
parties within the meaning of section 1 (1) AStG. The
same applies to Article 9, para. 1 OECD-MustAbk
(here: Article 9, para. 1 DBA-Austria 2000).
2 Art. 9 para. 1 OECD-MustAbk
(here: Art. 9 para. 1 DBA-Austria 2000) does not restrict the scope of
correction of § 1 para. 1 AStG to so-called
"conditions". price adjustments, but also enables the neutralisation
of the profit-reducing derecognition of a loan claim or a write-down to the
going-concern value thereof (contrary to Senate rulings of 24 June 2015 - I R
29/14, BFHE 250, 386, BStBl II 2016, 258, and of 17
December 2014 - I R 23/13, BFHE 248, 170, BStBl II
2016, 261).
3 Whether a correction under section 1(1)
of the AStG conflicts with the principle of
proportionality of Union law is determined by an overall assessment of the
circumstances of the individual case. When correcting shareholder claims from
loans or guarantees, the economic self-interest and financing responsibility on
the one hand and the structural proximity to equity capital resources and the
change in the asset and liquidity status of the lender or guarantor on the
other must be taken into account.
Tenor
On appeal by the defendant, the judgment of
the Finanzgericht Baden-Württemberg, Außensenate Freiburg, of 23 November 2017 - 3 K 2804/15 is
set aside
The case is referred back to the Finanzgericht Baden-Württemberg, Außensenate
Freiburg.
The decision on the costs of the
proceedings is assigned to the latter.
Facts of the case
I.
1
The parties involved dispute the legality
of an income adjustment under Section 1 of the Law on Taxation in Foreign
Relations (Außensteuergesetz), as amended by the Law
on the Reduction of Tax Benefits and Exemptions (Steuervergünstigungsabbaugesetz)
of 16 May 2003 (BGBl I 2003, 660, BStBl
I 2003, 321) --AStG--.
2
The applicant and appellant (the
applicant), a domestic limited liability company, had held a 50% shareholding
in A GmbH, a company established in Austria, since May 2001. The remaining 50%
were held by natural persons not related to the applicant, who were also
managing directors of A GmbH. The applicant granted A GmbH a total of five
loans with a term of between nine and 362 days for a total amount of ... EUR The loans each bore interest at 5.5 % p.a. Different
machines were assigned as collateral. In addition, by a contract dated 9 April
2003, the applicant gave a guarantee of EUR ... for a loan from the B Bank in
Austria to A GmbH.
3
On 22 January 2002 A GmbH repaid to the
applicant a partial amount of EUR ... and on 16 June 2002 a further partial
amount of EUR ... Due to the negative business development of A GmbH, the
plaintiff made a write-down to the partial value of the loans amounting to ...
EUR on 31 December 2003. After bankruptcy proceedings had been initiated
against the assets of A GmbH on 7 December 2004, the plaintiff was called upon
by B Bank in a letter dated 17 December 2004 under the guarantee agreement in
the amount of ... EUR. In this respect, the plaintiff formed a provision for
liabilities as of 31 December 2004. In addition, it wrote off the residual
value of the loans to A GmbH in the amount of ... EUR. The defendant and plaintiff
in the appeal (the tax office --FA--) neutralised the reduction in profits
caused by the write-downs at going-concern value and the provision in
accordance with § 1 (1) AStG by means of off-balance
sheet additions and increased taxable income by ... EUR (2003) and ... EUR
(2004).
4
The action was successful (judgment of the
Finance Court --FG-- Baden-Württemberg, Außensenate
Freiburg, of 23 November 2017 - 3 K 2804/15, decisions of the Finance Courts
--EFG-- 2018, 269).
5
By its appeal, the FA alleges infringement
of substantive law and requests that the judgment under appeal be set aside and
the action dismissed.
6
The applicant claims that the Court should
dismiss the appeal.
7
The Federal Ministry of Finance has joined
the proceedings (§ 122 (2) of the Fiscal Court Code --FGO--). It supports,
without filing its own motion, the appeal of the FA.
Reasons for the decision
II.
8
The revision is well-founded. It leads to
the revocation of the preliminary decision and to the referral of the case back
to the FG for further proceedings and decision (§ 126 (3), first sentence, no.
2 FGO).
9
The findings of the lower court are not
sufficient to determine whether the profit reductions based on the partial
write-offs and the provision are to be corrected off-balance sheet in
accordance with § 1 AStG.
10
1 If a taxpayer's income from business
relations with a person close to him is reduced by the fact that, in the
context of such business relations with a foreign country, he agrees terms and
conditions which differ from those which independent third parties would have
agreed under the same or similar circumstances, his income is to be assessed,
without prejudice to other provisions under Section 1 (1) of the German Income
Tax Act, as it would have been under the terms and conditions agreed between
independent third parties. According to § 1 (4) AStG,
a business relationship in this sense is any relationship under the law of
obligations on which the income is based that is not an agreement under company
law and which, either with the taxpayer or with the related party, is part of
an activity to which §§ 13, 15, 18 or 21 of the Income Tax Act apply or, in the
case of a foreign related party, would apply if the activity were carried out
in Germany.
11
2) According to this, an off-balance-sheet
addition of the profit reductions in question in the case in question pursuant
to § 1 AStG is possible.
12
a) The loan relationship and the contract
or free agency relationship between the plaintiff and A GmbH on which the
guarantee is based are such business relationships, the conditions of which
include (non-)collateralisation of the claims (still open in the Senate ruling
of 17 December 2014 - I R 23/13, BFHE 248, 170, BStBl
II 2016, 261, Rz 15). Although the term "condition" is not defined by
law, in the ordinary course of business, however, in addition to agreements on
the term, manner of repayment and the amount and date of payment of interest,
agreements on the collateral to be provided are usually to be expected. In
order to avoid repetition, reference is made to the statements made in the
Senate ruling on parallel proceedings (dated 27 February 2019 - I R 73/16, BFHE
263, 525, BStBl II 2019, 394, margin no. 21).
13
(b) The FG has not made any findings on the
question whether the collateralisation of the repayment claims from the loans
with the machinery transferred by way of security and the lack of
collateralisation of the guarantor's recourse claim -- also taking into account
Austrian law -- correspond to what a third-party lender or guarantor not linked
to A GmbH by a partnership relationship (ex ante) would have agreed. It did not
--a consistent with its view--discuss the arm's length problem in more detail
because it followed the previous Senate case law (judgements in BFHE 248, 170, BStBl II 2016, 261, and of 24 June 2015 - I R 29/14, BFHE
250, 386, BStBl II 2016, 258). According to that
case-law, provisions modelled on Article 9(1) of the Organisation for Economic
Cooperation and Development (OECD Model Tax Convention - OECD-MustAbk--), including the relevant provision in the
dispute, namely Article 9(1) of the Convention between the Federal Republic of
Germany and the Republic of Austria for the Avoidance of Double Taxation in
connection with Taxes on Income and on Capital of 24 June 2015 - I R 29/14,
BFHE 250, 386, BStBl II 2016, 258), should apply.
According to that provision, it is only possible to make an adjustment to
income under Article 1(1) of the AStG if the price
agreed between the associated companies does not stand up to the arm's length
principle in respect of its amount (its appropriateness). However, the Senate
does not adhere to this case law. On the contrary, the scope of the correction
in Article 9(1) OECD MustAbk also allows the
neutralisation of the profit-reducing derecognition of a loan claim or a
write-down to its going-concern value. For the reasons given, reference is
again made to the Senate ruling in BFHE 263, 525, BStBl
II 2019, 394 (margin no. 24 ff.). In this respect, there is no different result
for Article 9, para. 1 DBA-Austria 2000.
14
c) An arm's length settlement within the
scope of § 1 para. 1 AStG is not dispensable for
other reasons.
15
aa) If, in the plaintiff's situation, an
external third party as lender or guarantor was not prepared to extend the
loans secured by the machinery transferred by way of security to A GmbH or to
assume the guarantee to B Bank without valuable collateralisation of the
recourse claim, the so-called retention within the Group would not prevent the
facts of the case pursuant to § 1 AStG. On the one
hand, the plaintiff did not have a majority shareholding in A GmbH with its 50%
stake, so that the existence of a group relationship is already doubtful.
Secondly, the topos of the so-called group retention
merely describes the legal and economic framework of the inter-company
relationship and expresses the customary practice of not securing credit claims
within a group of companies in the same way as between strangers. However, the
possibilities of the controlling shareholder to exert influence on the borrower
alone cannot be regarded as customary (valuable) collateral for the repayment
claim in the sense of an active purchase obligation. Reference is also made in
this respect to the Senate ruling in the parallel case (BFHE 263, 525, BStBl II 2019, 394, marginals 13, 18).
16
bb) The reduction in income would have been
achieved within the meaning of § 1 AStG by
("thereby") the lack of or insufficient collateralisation (still left
open in Senate rulings in BFHE 250, 386, BStBl II
2016, 258, margin note 16, and in BFHE 248, 170, BStBl
II 2016, 261, margin note 15). The decisive factor here is -- in the sense of
the principle of causation (see Senate decision of 18 April 2018 - I R 37/16,
BFHE 261, 166, BStBl II 2019, 73, margin no. 23) --
the "triggering moment" for the profit-reducing write-off of
receivables or the formation of provisions. In the assessment required for this
purpose, the insolvency of the A GmbH is not to be taken into account, but
rather the inadequate collateralisation, because the plaintiff has linked its
claim to repayment of the loan or recourse to the economic development of its
subsidiary and such a "mixing of asset risks" would not have occurred
if valuable security rights had been granted.
17
(cc) Finally, Union law does not oppose a
correction of income under Section 1(1) of the AStG
either.
18
(1) According to the case-law of the Court
of Justice of the European Union -formerly the European Court of Justice-
(ECJ), a rule such as that laid down in Section 1(1) of the Coreper
Act constitutes a restriction on the freedom of establishment justified in
order to safeguard the balanced distribution of taxation powers between Member
States (Article 43 of the Treaty establishing the European Community, as
amended by the Treaty of Nice amending the Treaty on European Union, the
Treaties establishing the European Communities and certain related acts,
Official Journal of the European Communities 2002, No C 325, 1) (now Article 49
of the Treaty on the Functioning of the European Union as amended by the Treaty
of Lisbon amending the Treaty on European Union and the Treaty establishing the
European Community, Official Journal of the European Union 2008, No C 115, 47;
ECJ judgment Hornbach-Baumarkt of 31 May 2018 -
C-382/16, EU:C:2018:366, Supreme Court Financial Jurisdiction 2018, 580).
19
(2) Insofar as the ECJ, in its decision in
favour of the free assumption of guarantee and patronage commitments within the
scope of its considerations on proportionality, has recognised that the
economic self-interest of the group parent company in its affiliated companies
and the certain responsibility as a shareholder in financing these companies
justify ("declare") business transactions under conditions that are
not at arm's length and can therefore stand in the way of an adjustment under
Section 1 of the German Income Tax Act, this restriction does not apply in the
present case.
20
In its ruling on the parallel case (BFHE
263, 525, BStBl II 2019, 394, marginals 13, 18), the
Senate stated that if the provision of borrowed capital by a shareholder
compensates for the company's insufficient equity capital resources and this
financing is the prerequisite for the loan-receiving company to be able to
(continue to) fulfil the economic function intended for it, different treatment
of contribution and loan defaults is ruled out, taking into account the claim
to the validity of profit deferral in accordance with arm's length conditions,
which is also recognised under EU law. The same would apply to the dispute.
21
(3) The contested judgment is based on a
different legal assessment. It must therefore be set aside. The case must be
referred back to the FG in order to enable it to make the necessary findings on
the arm's length comparison.
22
(4) The transfer of the decision on costs is based on Section 143(2) FGO.